https://www.nytimes.com/2020/02/03/business/energy-environment/china-oil-opec.html
With the outbreak of Coronavirus, Chinese oil demand has fallen to 20% or 3 million barrels per day. This has hit oil markets really hard and fast. We are seeing the impact as Brent crude reduced its price to $56 per barrel, a fifteen percent drop in one month. This market event has concerned the officials of Organisation of the Petroleum Exporting Countries and Russia. Henceforth they will be meeting in Vienna, headquarters of OPEC on Tuesday and Wednesday. The officials want to cut back on oil production to stabilize the oil prices, especially, Saudi Arabia whose main oil exporting country is China. By reducing the crude production, these countries will see a reduction in their revenues. Although, it is too early to predict, but still, what do you think would be a likely economic outcome by implementing this economic policy?
3 comments:
I believe that cutting back on crude oil production might have a possible detrimental impact on other importers of crude oil such as Japan, the Netherlands and India, since it would drive prices of crude oil up, and cause possible inflationary pressure in those respective regions. However, from a supplier's perspective, I do agree that since China imports 20% of the crude oil produced, the market is taking a hit and will need to act accordingly. The impact of this decision would really depend of the level of supply reduced, and the degree of crude oil substitutes available to other large importers of crude oil.
I think that much like the oil industry the Coronavirus will continue to impact many industries around the world. Implementing this economic policy will have a negative impact in the beginning, however I do think it's necessary in the long-run for the market to re-balance.
I can't say for sure what I think will happen, but nonetheless it's good to see that policies are being implemented in order to prevent a disaster in the oil market. I don't know if slowing down use of oil is the correct path but I'm glad to see an effort is being made.
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